A few months ago, no one expected what is happening now in the world; Yes, there was talk about the signs of an economic crisis due to the US-China conflict, but Corona came to offer the world a fatal blow; The world's worst economic crisis since the Great Depression nearly a century ago. Experts now say that the post-corona world will be different from the pre-corona world; In this article, we will review only one effect: And we repeat only one of what Corona may do in the plans of technology companies and the future of smartphones.
Important clarification
Before we begin, we must clarify important points, which are:
1
This article is analytical and based on expectations for the crisis caused by the Coronavirus; We are analyzing the current data and anticipating what will happen. This does not mean that what is said must happen. No one knows the unseen except God. And perhaps (although this is unlikely) a cure for corona will appear and the world will start to recover early.
2
The 2020 plans and the upcoming phones in them are considered almost a foregone conclusion by the companies; Billions have been spent, production lines ready and the manufacture of phone parts; Therefore, we are talking about future plans and not what has entered the implementation phase.
The economic dilemma
There is a rule that every trader knows, which is that when the market is good, almost everyone wins; When you have a lot of money with the buyers, the chances of you selling anything will be much easier. But when the market is bad and weak and less people have money. Here the "market cake" has become small and the struggle will be very difficult, and only the most skilled and professional will survive. And here comes the current problem.
Corona caused an economic crisis that led to more than 30 million Americans losing their jobs during the months of March and April, and the International Labor Organization said that there are 195 million people around the world who will lose their jobs, including 5 million in the Arab world; We remind you that this prediction was before the beginning of April, and the situation is now worse, as there are other changes that have taken place, such as the collapse of oil, for example. Forecasts have reached 305 million, and experts say we are in the worst crisis in nearly a century since the end of the Great Depression.
Why change?
Is there a huge technical difference between the iPhone Xs and the iPhone 11 Pro? What about the S10 and S20? Of course the debate is not the best, certainly 11 Pro is better than the Xs, but I ask is there a huge difference? The answer is no, but we see tens of millions upgrade for the simple reason, "Why shouldn't I be promoted ?!" The price of the phone is $ 1000, but this amount is not large for more than 100 million people around the world annually who pay it in the higher category of Apple. But in a situation of economic crises, the situation is completely different.
When your financial situation is good, you automatically think of the previous question, "Why should I not be promoted ?!" My car is doing well but I want the best; Also my phone and PC. But if you become unemployed, would you consider upgrading? Or even there is a fear for your future career or finances? Here you will think carefully before upgrading, return your accounts and ask, "Is the upgrade worth the risk of paying?" In times of crisis, many people decide, "I will postpone paying any amount of money except for what is actually due." And here is the problem.
Difficult decision; Value for price
People around the world wouldn't decide to live without phones, computers, cars, and everything; The crisis will push them to think about "value for price." Therefore, companies are now faced with two difficult choices: It is necessary to work on this equation:
القيمةThe first solution is to put real advantages and differences that make you really accept the purchase and feel that you will find a clear difference between your current and new phone.
PriceThe second option, in which companies play on the price; The iPhone customer of the thousand dollars will not be able to pay his money? Well we'll save it IPhone 12 and 12 Max With an OLED screen at a price of $ 700/800 ... Previously, it was talk about an iPhone with an OLED screen that means paying an amount of + $ 1000, but now all the news is that OLED screens will reach $ 700 for phones in Apple. But if you are more physically affected, the iPhone SE 2 has been updated for you.
Is Apple the worst?
Apple is the number 3 company in the number of smart phone sales, but at the same time it is number 1 in terms of sales value and also reaps approximately 66% of the market profits because its phones are the most expensive by a huge difference. So when a problem occurs that hits the economy and the users ’money, here the biggest damage will be on Apple, because it basically targets 15% of the world's wealthiest users and controls three quarters of this segment. What would happen if the number of people in this category decreased? If we assume that the segment that Apple was targeting, their number in the world is 350 million, and Apple reaches 250 million of them with various devices ... But what if the Corona crisis causes the slide to become 250 million, for example? Automatically Apple's share will decrease to 175 million customers. (Figures are illustrative, not official).
This does not mean that other companies will not be affected, although they provide devices for various groups, but financial crises usually crush the poor more than the rich. A very wealthy person will only become rich; And the rich will become average. They both can still buy a phone in one form or another, but what about the average or poor person? He will be out of money and will not be able to buy anything.
Everyone will be affected, but Apple is expected to be the worst affected in terms of sales value. If we assume now that it sells 200 million iPhones and that the 11 and Xr phones and older phones represent 130 million, and the 11 and 11 Pro phones represent 70 million ... we may find that after a year, "over a thousand dollars" phones have a share of less than 25% of the total sales. That is, there will be a decrease in the total number and a decrease in the sales structure itself. We need to wait together the results of the third fiscal quarter (usually announcing July 30th) and fourth (announcing October 30th) and together we will remember this conversation when we see the sales value.
I just remind you of a point which is that Apple for the first time decided in announcing its fourth quarter results to tell investors that there are no expectations for the next quarter (April-June). Apple was always publishing forecasts for the next quarter, but this time it was silent and did not mention any forecast. In short, she does not know.
How do tech companies survive?
There are several ways to survive the current crisis, for example
1
Value for price And this is the point we mentioned above; Companies will strive to provide you with the best value for what you pay, either by adding real benefits or by providing cheaper copies of their phones.
2
Local pricing: This point will benefit Apple and it had previously promised, but it failed to fulfill its promise. All companies around the world change the price of their phone according to the market. For example, a phone like the SE 2 has a price in America of $ 400 and the price of a Samsung A71 phone is $ 375, almost the same price. In the UAE, you will find that the price of the iPhone is 1700 dirhams and the price of a Samsung phone is 1300 dirhams. Did you see the difference? Also see the price of the iPhone 11 Pro Max, its price in America is $ 1100 and the Samsung S20 Ultra is $ 1200, which means Samsung is more expensive; In the UAE, you will find the price of the Samsung 4000 dirhams and the iPhone 11 Pro Max price 4600 dirhams. All companies re-price their phones in proportion to the local market, except for Apple that puts a price in the US market and then puts another global price above it, regardless of whether it is a suitable price for the local market or not. Previously, this method is ideal for attracting lovers of the most expensive and distinguished acquisition, but in the future their number will become much less and there are markets such as India and China where Apple will retreat, which prompted it to continue offering old phones from the iPhone 7 in the Indian market. Apple does not want to reduce the price and put you in place to buy an old phone because you do not have the money to buy the latest and I will not re-price my devices.
3
Replacement programs: Apple provides in the American market a program in which you can participate, where you pay $ 35 per month to acquire the iPhone 11 category or $ 50 to acquire the 11 Pro category, and you pay this amount permanently monthly and every year you go to Apple and give them your old phone and give you the new from the same category. The method is good and Apple might have to expand globally.
4
Great average phonesSince the number of people who can afford to pay $ 700 or more is small; The solution is the conflict in the middle phone category of $ 300-500, thus attracting those who are no longer able to pay $ 700-1000 on a phone.
The cost dilemma
Meaning that you have to provide a better technology is that you spend more to develop it; When you spend more and have fewer customers, this means a collapse in profits. The same thing when re-pricing or reducing the price means less returns. When you look at the CounterPoint report published in December 2019, you will find that it says that 66% of the profits of the mobile sector go to Apple; Followed by Samsung with 17%, and the remaining 17% are shared by the value of the companies “Huawei, Oppo, Vivo, OnePlus, Xiaomi and Lenovo”.
That is, companies almost do not earn so when they want to provide better, here they have a dilemma; There are no profits, so what is the solution? The solution will be to introduce the best as the price increases; We saw this on the OnePlus 8 Pro, which reached $ 900, and the same thing happened with Xiaomi in Mi 10; Companies in order to offer the best had to raise the price to Apple and Samsung levels. While talking now that Apple will issue the iPhone 12 at the same price as the iPhone 11 and move the screen to OLED with many updates, the secret is that Apple has a high profit margin that will enable it to do so. Samsung also does not expect to see an increase in the price of the Note 20 from its predecessor.
It remains to be remembered that the Corona virus has forced companies to take health measures that cost more. That is, the natural cost has increased.
last word
Companies will fight in various ways to reach the users; The more the crisis intensifies, the less willing to buy, and each company will seek to obtain this user for it. Some impressive new features will be added by some companies, but this will be at the expense of the price; While other companies will focus on the middle class and offer great phones in it; There are those who will focus on the price so that you see attractive offers. It remains only to wait and see what will happen in the market and remember that what is being announced now are phones that were actually developed before the crisis; A few months ago, we will see drastic changes in the markets.
Remember that none of the above may happen. Or we may see it from all companies except Apple, which may continue the policy of our devices for those who own their price, which by the way is a theoretically sound and successful policy of "selling excellence", especially that Apple relies on the services sector to compensate for the decline in device sales, as happened last quarter, where the devices retreated and the decline covered the improvement of services.
Sources:
ILO | counterpoint | Apple
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